Nkarta, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Nkarta is a clinical-stage biotechnology company developing off-the-shelf engineered natural killer (NK) cell therapies. It has no approved products and has never generated product-sales revenue.
Financial performance and liquidity
Amounts below are in millions of dollars, except per-share data.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $22.2 | $23.4 | $73.5 | $64.1 |
| General and administrative expense | $7.1 | $6.8 | $27.0 | $19.9 |
| Total operating expenses | $29.3 | $30.3 | $100.5 | $84.0 |
| Net loss | $25.6 | $28.3 | $89.7 | $81.3 |
| Net loss per share, basic and diluted | $0.52 | $0.58 | $1.83 | $1.94 |
| Interest income | $3.6 | $1.9 | $10.7 | $2.7 |
As of September 30, 2023, cash, cash equivalents, restricted cash and investments totaled $278.4 million, down from $354.9 million at December 31, 2022. Current assets were $281.2 million and current liabilities $25.6 million. The filing reports no borrowings; operating lease liabilities totaled $89.5 million, including $6.1 million current. Accumulated deficit was $407.7 million. Profit margins are not meaningful given the absence of revenue.
For the first nine months, operating cash outflow was $62.8 million, versus $49.7 million in 2022. Investing activities provided $63.2 million, mainly reflecting investment maturities, while property and equipment purchases were $21.3 million. Financing provided $0.4 million; the prior-year period included $215.6 million net proceeds from a secondary offering. Management stated that available cash and investments were expected to fund obligations for at least 12 months from the filing date. No ATM shares were sold during the first nine months of 2023.
Changes versus prior comparable periods
- Q3 operating expenses fell $1.0 million year over year, and net loss narrowed by $2.7 million, with higher interest income contributing to the improvement.
- Nine-month operating expenses rose $16.5 million and net loss widened by $8.5 million. R&D increased $9.4 million, principally due to higher personnel and internal research costs and lower CRISPR cost-sharing reimbursements. G&A increased $7.1 million, including a $4.1 million lease-asset impairment.
- Cash used in operations increased $13.1 million year over year. Cash and short-term investments declined as the company funded operations and facility investment; investment purchases and maturities also drove large investing cash flows.
Outlook, programs and risks
- Funding and spending: Nkarta expects continuing losses and substantial spending on clinical development, manufacturing and research. It says additional capital may be needed for its longer-term strategy, including potential pivotal trials; future financing could dilute shareholders or require restrictive terms or partnering. A shelf registration permits offerings of up to $350 million in aggregate, subject to its terms.
- Cost actions: In October 2023, the company announced an 18-position reduction, about 10% of its workforce, a cap on future headcount growth and plans to centralize operations at one location. It estimated $1.0–$1.5 million of severance and transition costs, expected in Q4 2023, and was seeking to sublease office space. Management said the measures were intended to support operations through multiple clinical data updates expected in 2024.
- Clinical development: NKX101 (NKG2D-ligand targeted) and NKX019 (CD19 targeted) were in Phase 1 cancer trials. Preliminary results from NKX019 B-cell lymphoma dose-expansion cohorts did not meet expectations; enrollment in those cohorts stopped while results were evaluated. In October, Nkarta opened an NKX019 cohort using a compressed dosing schedule. The FDA also cleared an IND for a planned Phase 1 NKX019 trial in refractory lupus nephritis.
- Operational and clinical risks: The filing identifies uncertain early-stage efficacy and safety, patient enrollment challenges, manufacturing scale-up and facility qualification, reliance on third-party materials and a sole supplier for certain manufacturing steps. A fludarabine shortage had caused enrollment delays at some trial sites. Cell-therapy competition and the need for further financing are material risks.
- Unusual items and controls: The $4.1 million right-of-use asset impairment was recorded in Q2 2023 after the company began marketing some leased space for sublease; no additional impairment was recorded in Q3. Management reported effective disclosure controls as of September 30, 2023 and no material change in internal control over financial reporting during the quarter. No material pending legal proceedings were disclosed.
Important facts for investors to verify
- Whether management’s stated cash runway remains adequate as clinical spending, cost reductions and trial plans evolve.
- Upcoming NKX101 and NKX019 clinical updates, including the new NKX019 dosing cohort and the planned lupus nephritis trial.
- Whether the fludarabine shortage, patient recruitment and manufacturing capacity affect trial timelines or supply.
- Progress on subleasing space, facility plans and the expected costs and savings from the October workforce reduction.
- Potential financing needs, use of the shelf registration or ATM program, and resulting dilution; also note that insiders, directors and certain large holders collectively beneficially owned approximately 81% of common stock as of November 6, 2023.